Solar Panels Contract Pitfalls

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As more and more homeowners are installing solar panels, all parties to the transaction need to keep a sharp eye on all of the pitfalls involved.  If these matters are not addressed it could lead to litigation and thousands of dollars in obligations and costs.

First, on the listing side.  If there are solar panels on the home, the agent must inquire:

Is the solar system:

Owned outright?

                If so, there are no applications or obligations outstand, the parties are good to go.  Buyer’s should inquire if there are any warranties on the equipment and if they can be transferred to the buyer.

Leased?

                 If leased, can the lease be transferred and assumed by the buyer?  Who will pay any application and assumption fees?

Financed?

                  If financed, will the seller pay off the debt at closing, or will the buyer assume the financing?  Is there an application and assumption fee?  Who will pay?

The Contract must also address:  What if the buyer does not qualify to assume/assign the lease or financing?  What if the Lessor or lender does not allow an assumption? 

It is important that the listing agent obtain a title commitment when listing the property to determine if there are any issues with the solar system.  At The Closing Agent, we offer seller’s a complimentary title search when listing a property which will disclose any encumbrances for solar systems, and will also disclose any other title issues that could impede the transaction.

When the title commitment is completed, it will likely disclose a memorandum of the lease, a UCC if financed and/or a financing agreement (Mortgage).  If the assumption of the obligation is not addressed in the Contract for Purchase and Sale, the Seller must provide clear and marketable title, therefore the Seller will be obligated to fulfill any financial obligations (pay off the amounts due or lease obligations) in order to provide marketable title.

Agents should be sure to address and disclose the solar system situation in the MLS listing and the seller’s disclosure .  Buyer’s agents should be sure to inquire about the solar system prior to submitting an offer.

We recently had a buyer under contract with a solar system that was financed.  The listing agent did not disclose anything on the system, so the buyer assumed it was owned outright.  The title commitment disclosed a UCC financing lien.  There was an outstanding balance of $25,000.00  The listing agent insisted that the buyer must assume the obligation.  He further stated that if the buyer was not willing to assume the debt, that the buyer could cancel the contract.  We intervened and informed the seller that the seller was obligated to pay the balance and deliver clear and marketable title to the Buyer.  If Seller refused, the buyer can bring an action for specific performance under the FR/BAR contract.

If the property is subject to a PACE loan, agents should use the new PACE Disclose (Form EE- CR-6 Rev 11/21).  PACE is a long term, fixed rate  financing arrangement.  The seller may have financed  up to 100% of the costs involved in installing the solar system  and labor.  As the PACE loan can be pre-paid at anytime without penalty, Buyers should include language that obligates the seller to do so at closing.  PACE loans do not require any approvals for the assumption of the obligation as the debt is associated with the property and not the owner. Also, Buyers should be aware that the Federal Housing Financing Agency (FHFA), Fannie Mae and Freddie Mac will not finance a property with an outstanding PACE obligation.

We have developed a form addendum to address these issue and is now available in our Realtor Resource Center at:

www.theclosingagent.com/addendums

Propane tanks and water filtration/softener equipment should also be addressed in this same manner.

Please note this article is for informational purposes only and should not be construed as legal advice. The facts and circumstances of each case, transaction, or matter can differ greatly. You should not use this information as a substitute for consulting with a licensed attorney. Barry L. Miller, P.A., and its attorneys, and staff, do not represent you unless you execute an engagement agreement with the Firm which confirms that representation.

Barry Miller Law is familiar with all aspects of real property law. If you, or someone you know, has legal questions concerning real estate, business or probate law, contact Barry Miller Law for assistance at 407-423-1700 or email us at info@BarryMillerLaw.com for a consultation.

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